The fossil fuel industry’s continued chokehold on state resources

Subsidies to Big Oil, which total hundreds of billions a year, need to stop because they cannot be justified. Instead, the money must be channelled into socially beneficial projects.

coal pollution
Power plants run on coal are among the biggest polluters of the environment. Yet, hundreds of billions of dollars of subsidies go into the industry every year. Image: Shutterstock

What if I told you that a substantial amount of your hard-earned tax dollars went into financing one of the wealthiest, most powerful industries in the world? What if I added that this industry is responsible for the destruction of public health and the natural environment? To close it all off, I must mention that your democratically-elected representatives are highly dependent on ‘contributions’ from the said industry for their election campaigns. Did I guess it right? – You must not be very happy about it. And you must also be guessing which industry I’m talking about.

According to International Energy Agency (IEA) figures, in 2012 global fossil fuel subsidies amounted to $544 billion. On the other hand, the financial support provided to the renewable energy sector was under 20 percent of that, or $101 billion. The estimate of the International Monetary Fund (IMF) for oil, coal and gas subsidies is much higher, putting the total nearer $2 trillion. The differences stem from the uncertain definition of what a ‘subsidy’ represents, but in any case, the figures are striking. 

Taking a national perspective, in the United States alone, reliable assessments of yearly fossil fuel subsidies range from $10 billion to $52 billion per annum. This number exceeds by 5-6 times the amount spent on renewable energy generation.

This substantial chunk of the government’s revenue would be much better spent financing socially beneficial projects such as building new schools, hospitals and badly-needed infrastructure. In addition, fossil fuel subsidies, if diverted to the renewable energy sector, would serve a longer-term, more sustainable purpose that would not only provide for a cleaner environment, but would also reduce dependence on ‘dirty’ fuels that exacerbate the effects of climate change.

What is more, subsidies take many different forms, ranging from production subsidies for exploration of oil and gas reserves and tax breaks, to consumption subsidies granted to the end consumer by reducing the price paid for petrol or electricity. This helps create an uneven playing field for other energy companies and also spurs artificially-boosted demand patterns on the consumer side. Enough said about the “free market” hypothesis advocated by so many vigorous supporters of the fossil fuel business. Providing such tremendous support to a powerful hegemon of an industry, out of state coffers, is hardly justifiable by the almighty Free Hand of market liberalism.

In terms of the government logic for continued provision of subsidies to the oil, coal and gas giants, the supposedly noble rationale of serving the most disadvantaged members of society doesn’t stand scrutiny. Indeed, it is the poorest members of the population that benefit least from subsidized fuel and electricity prices, because they often don’t own a personal vehicle or expensive energy-consuming devices: according to the IMF, the richest 20 percent get six times the benefit of the poorest 20 percent. It is apparent that fossil fuel subsidies benefit only the richest producers and the richest consumers of hydro-carbon fuels.

Recognizing these disparities, there have been numerous attempts, including by President Barack Obama, to introduce legislation in the United States that considerably reduces the subsidies provided to the fossil fuel industry. Among the pieces of legislation proposed for adoption were: The Repeal Big Oil Tax Subsidies Act, sponsored by Senator Menendez (D-NJ) and the End Polluter Welfare Act, introduced by Senator Bernie Sanders and Representative Keith Ellison.

The supposedly noble rationale of serving the most disadvantaged members of society doesn’t stand scrutiny. Indeed, it is the poorest members of the population that benefit least from subsidized fuel and electricity prices, because they often don’t own a personal vehicle or expensive energy-consuming devices.

However, such commendable legislative changes, aiming to free up much needed public funding for socially valuable projects and reducing reliance on unsustainable sources of energy, would not be taken up by the US Congress. ‘Surprising’, you would say – Isn’t democratically-elected Congress supposed to have the people’s best interests in mind?

The situation is a bit more complex. The reluctance to phase out fossil fuel subsidies might well stem from the fact that Congressmen receive substantial support for their election campaigns from Big Oil (read here Chevron, Exxon Mobil, Koch Industries, Shell, BP, etc.). Indeed, the amount spent by the fossil fuel lobby during the 111th Congress (in 2009 and 2010) totalled $347,282,110. However, this figure pales in comparison to the subsidies provided to fostering the USA’s reliance on oil, coal and gas: the full amount given to fossil fuel companies during the 111th Congress was $20,489,340,000. Do the math and this represents a staggering 5800 percent return on investment!

There are winners and losers in every game, but certainly in this case, our governments are not winning. To make matters worse, according to the Overseas Development Institute (ODI), given the volatile market prices of fossil fuels at the moment, the policy of subsidizing already powerful Big Oil represents a poor investment of public money.

What is more, if the views of the world’s most respected scientists are to be taken into account - look at the Intergovernmental Panel on Climate Change Report: The Physical Science Basis 2013 - then in order to avoid some of the most catastrophic consequences of human-induced climate change and environmental impact, we need to keep at least two-thirds of existing fossil fuel reserves in the ground. This, effectively, means that the majority of carbon fuels will have to stay unburnable, creating a carbon bubble (similar to the bubble and the 2008 mortgage crash).

The government’s policy of relentlessly supporting fossil fuels seems all the more unreasonable in this light. Yet, it is not advocated here that we need to, or indeed can, stop relying on energy altogether. Energy is vital in supporting all the processes and workings of a modern world. What it will take, however, is a steep and consistent transition to cleaner, reliable and cost-effective sources of energy that are here for the long run: renewables.

For the sceptics, it must be noted that on 11 May 2014, Germany (neither a very sunny, nor a windy country) managed to generate 75 percent of the country’s overall energy demand from wind and solar power. Moreover, the country - the fourth-biggest economy in the world - generated 27 percent of its energy needs by renewables in the first three months of 2014. This commendable example only goes to show that what is lacking is not capability, but political will, to make a change.

It also makes economic sense. Studies suggest that renewables represent much better value per dollar invested: every US dollar spent on renewable energy subsidies attracted $2.50 in investment, while a dollar in fossil fuel subsidies drew $1.30 of investment. This number excludes the socially harmful effects of pollution generated by Big Oil companies such as health impact, deteriorating environment and oil spills (e.g. the infamous Gulf of Mexico Spill by BP in 2010); neither do these calculations take into account the benefits provided by renewable/clean energy in terms of job creation, green economy benefits, ‘natural’ unquantifiable benefits, human rights/health impact and improved natural habitats for biologically diverse flora and fauna.

The call is yours to make when approaching your elected representatives – members of the public can demand a change by requesting their governments and organizations to divest from fossil fuels (just like the Rockefeller Brothers Fund did in September last year). If a big name in Big Oil can do it, you can do it, too.

Inna Amesheva is a PhD candidate at Hong Kong University. This article was written exclusively for Eco-Business.

Did you find this article useful? Join the EB Circle!

Your support helps keep our journalism independent and our content free for everyone to read. Join our community here.

Most popular

Featured Events

Publish your event
leaf background pattern

Transforming Innovation for Sustainability Join the Ecosystem →